- Because subsidy rates are determined by dividing the amount of the subsidy by an exporter's total sales (or, in the case of export subsidies, its US imports), the "sheer volume" of Chinese solar panel-makers' production and sales "diluted the effect of any subsidies the Chinese companies received"; and
- Because Commerce calculates subsidy rates for Chinese loans from state-owned banks by comparing the loans' actual interest rates against a "benchmark" based on a basket of lending rates from other, similarly-situated countries (based on Gross National Income), "generally low interest rates in many countries around world might make it hard to prove Chinese companies received a significant advantage from government-set lending rates."
CFR's Edward Alden, however, has another guess as to why the rates were so low - politics:
In short, no. And there two main reasons why.
First, there's very little chance that the White House somehow convinced Commerce to fudge its subsidy calculations. Commerce is required by law and its own regulations to calculate CVD rates - and disclose those calculations - according to a pretty strict methodology. While some of us might disagree with the way the law/regulations are drafted and/or with certain assumptions that Commerce might make during the course of an investigation, the actual calculation of CVD rates is pretty predictable and transparent (at least for people with access to the confidential record and good lawyers) based on record evidence submitted by respondent exporters/importers, the subsidizing government and domestic petitioners. All evidence is placed on the confidential record for all authorized parties to review, as are Commerce's actual subsidy calculations. And all parties have a chance to review and comment on the legal and factual bases for Commerce's calculations before they're published. Any good lawyer - and I have no reason to think that the US solar panel manufacturers and union have bad lawyers - will go over the evidence and calculations and will catch any legal or factual errors in Commerce's calculations. (See how sexy and exciting trade law is, kids?). Thus, any White House-mandated fudging of record data or sneaky subsidy calculations would be extremely apparent to petitioners' lawyers (and their friends in Congress and all other parties to the investigation) - a fact that the White House and Commerce most certainly understand. Thus, the chances that the White House would risk a rather giant controversy, especially in a rather closely-watched case, to rig a preliminary decision (especially a preliminary decision) just simply isn't very plausible.
Indeed, a close review of the preliminary determination indicates that Commerce didn't take it easy on Chinese solar panel exporters and the Chinese government and instead took a rather hard line. For example, the agency applied "adverse facts available" (essentially taking the worst possible data for respondents, usually those provided by petitioners) with respect to several subsidy programs - provision of polysilicon inputs; provision of land; and certain grants discovered during the course of the investigation. It also found "critical circumstances" in the investigation (retroactively applying preliminary duties by 90 days), expanded the scope of the investigation to include subject merchandise produced in a third-country from cells produced in China, and, as noted above, decided to investigate several new subsidy programs over the coming weeks.
These are not the types of determinations that a softball-pitching Commerce Department makes.
Second, Alden notes but dismisses the very-important fact that Commerce will make a related preliminary anti-dumping determination in mid-May of this year, and pretty much everyone thinks that these duties are going to be huge (as they typically tend to be under Commerce's "non-market economy" methodology). Assuming they are (and, as I noted last week, global market conditions in 2010 pretty much guarantee large dumping margins, regardless of the Chinese industries' "predatory" intentions), the White House's secret plan to will have worked for all of 8 weeks (and, again, only with respect to preliminary estimates of final duties rather than the final duties themselves). This hardly seems like a well-thought-out master plan to ensure that the "flow of cheap Chinese solar panels for installation in the United States will be largely unimpeded."
Granted the timing of the Ex-Im Loan is a bit of a "coincidence" (although it was several weeks before the CVD prelim), but I really, really suggest we apply Occam's Razor here: the Ex-Im loan is likely just part of the typical protect-and-subsidize strategy employed by mercantilists around the globe, particularly those who have targeted industries for extra special treatment (like the Obama administration has with US "green" energy manufacturers). Only this time, the "protectionist" part of the Obama administration's strategy just got a little delayed by silly old things like facts and law. But don't fret: I have no doubt that they'll complete the circle in the end.
Unfortunately for US solar panel consumers.
The Obama administration has absolutely no desire to impose punitive duties that would actually impede the sale of Chinese solar modules. The power generated by new solar installations in the United States last year was twice the level added in 2010, largely due to falling panel prices, as well as U.S. government production subsidies and consumer tax breaks that have made solar more competitive with conventional sources. Expanding the use of renewable energy is among the administration’s highest priorities. Indeed, when the duties were announced last week by the Commerce Department, President Obama was touring a Nevada solar facility that is the largest PV plant in the United States. Slapping hefty tariffs on Chinese PV imports would undermine that policy.Now, I certainly love a trade conspiracy theory as much as the next guy (more, actually), but given what we know about US trade law and practice, as well as the particular facts of Solar Panels case, is Alden's "grassy knoll" theory about low solar panel duties even remotely possible?
At the same time, however, the Obama administration does not want to see the few remaining U.S.-based panel makers driven out of business by cheap imports, and key administration allies like Senator Ron Wyden (D-OR) and House Ways and Means Committee ranking member Sander Levin (D-MI) have been pressing for aid to the industry.
What to do? Well, on February 29, the board of the U.S. Export-Import Bank, the U.S. government’s export credit finance agency, approved an $81 million loan guarantee to SolarWorld, which means that most of the production from the company’s Oregon facility will be exported to Canada. The bank did not put out a press release, and it generated no media coverage, though the decision was public.... The bank says the financing will allow for a long 18-year repayment term for exports to the Stardale Solar PV Project in southwest Ontario, which is providing energy to the Ontario Power Authority. The project is owned by Innergex Renewable Energy of Quebec, and the loan will be made by the Bank of Tokyo-Mitsubishi.
The Ex-Im loan guarantee is hardly unusual. Indeed it fits within the bank’s mandate to support environmentally beneficial projects, and SolarWorld and other U.S. companies such as FirstSolar have also received generous support from the bank in the recent past. But the February loan guarantee has the added benefit of largely taking care of SolarWorld’s near-term competitive problems. SolarWorld can export panels to Canada, and the low duties imposed by Commerce mean that the flow of cheap Chinese solar panels for installation in the United States will be largely unimpeded. It is, as governments love to say, a “win-win.”
Coincidence? Maybe, but a rather happy one for the Obama administration.
In short, no. And there two main reasons why.
First, there's very little chance that the White House somehow convinced Commerce to fudge its subsidy calculations. Commerce is required by law and its own regulations to calculate CVD rates - and disclose those calculations - according to a pretty strict methodology. While some of us might disagree with the way the law/regulations are drafted and/or with certain assumptions that Commerce might make during the course of an investigation, the actual calculation of CVD rates is pretty predictable and transparent (at least for people with access to the confidential record and good lawyers) based on record evidence submitted by respondent exporters/importers, the subsidizing government and domestic petitioners. All evidence is placed on the confidential record for all authorized parties to review, as are Commerce's actual subsidy calculations. And all parties have a chance to review and comment on the legal and factual bases for Commerce's calculations before they're published. Any good lawyer - and I have no reason to think that the US solar panel manufacturers and union have bad lawyers - will go over the evidence and calculations and will catch any legal or factual errors in Commerce's calculations. (See how sexy and exciting trade law is, kids?). Thus, any White House-mandated fudging of record data or sneaky subsidy calculations would be extremely apparent to petitioners' lawyers (and their friends in Congress and all other parties to the investigation) - a fact that the White House and Commerce most certainly understand. Thus, the chances that the White House would risk a rather giant controversy, especially in a rather closely-watched case, to rig a preliminary decision (especially a preliminary decision) just simply isn't very plausible.
Indeed, a close review of the preliminary determination indicates that Commerce didn't take it easy on Chinese solar panel exporters and the Chinese government and instead took a rather hard line. For example, the agency applied "adverse facts available" (essentially taking the worst possible data for respondents, usually those provided by petitioners) with respect to several subsidy programs - provision of polysilicon inputs; provision of land; and certain grants discovered during the course of the investigation. It also found "critical circumstances" in the investigation (retroactively applying preliminary duties by 90 days), expanded the scope of the investigation to include subject merchandise produced in a third-country from cells produced in China, and, as noted above, decided to investigate several new subsidy programs over the coming weeks.
These are not the types of determinations that a softball-pitching Commerce Department makes.
Second, Alden notes but dismisses the very-important fact that Commerce will make a related preliminary anti-dumping determination in mid-May of this year, and pretty much everyone thinks that these duties are going to be huge (as they typically tend to be under Commerce's "non-market economy" methodology). Assuming they are (and, as I noted last week, global market conditions in 2010 pretty much guarantee large dumping margins, regardless of the Chinese industries' "predatory" intentions), the White House's secret plan to will have worked for all of 8 weeks (and, again, only with respect to preliminary estimates of final duties rather than the final duties themselves). This hardly seems like a well-thought-out master plan to ensure that the "flow of cheap Chinese solar panels for installation in the United States will be largely unimpeded."
Granted the timing of the Ex-Im Loan is a bit of a "coincidence" (although it was several weeks before the CVD prelim), but I really, really suggest we apply Occam's Razor here: the Ex-Im loan is likely just part of the typical protect-and-subsidize strategy employed by mercantilists around the globe, particularly those who have targeted industries for extra special treatment (like the Obama administration has with US "green" energy manufacturers). Only this time, the "protectionist" part of the Obama administration's strategy just got a little delayed by silly old things like facts and law. But don't fret: I have no doubt that they'll complete the circle in the end.
Unfortunately for US solar panel consumers.
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